Tesla package passes Nevada Legislature without dissent
September 12, 2014
The $1.3 billion package of tax breaks and incentives designed to bring the Tesla Motors battery plant to Northern Nevada was approved Thursday evening without a single dissenting vote by the Legislature.
The Senate gave final approval to two Assembly bills approved earlier and passed the bill enacting the vast majority of the $1.3 billion worth of tax abatements and breaks.
All four measures won 21-0 support in the Senate. They won 39-0 support in the Assembly, which was three members shy because of unavoidable health reasons.
The plant being built in the Tahoe Reno Industrial Center is expected to produce up to 22,000 jobs and $100 billion in Nevada's economy over the next 20 years.
SB1, which contains the vast majority of the tax breaks — about $1.1 billion in all — was debated at length in the Senate but moved more quickly through the Assembly. After concerns were raised by a number of members, the bill was written to include a laundry list of protections the governor's office says will ensure not only Tesla keeps its promises but if not, Nevada can get the money back.
It also was amended to require if the company wants a waiver of any of those performance requirements, it be posted on the economic development website for all to see and comment on.
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In addition, AB1 was approved extending from four to eight years electric energy rate breaks that will lower the company's power costs. AB2 was approved opening the door to makers of 100 percent electric cars (Tesla) to sell directly to the public without going through franchise dealerships as is currently required to all vehicles. AB3 was approved taking Home Office breaks enjoyed by a dozen insurance companies for the past 40 years and giving them instead to Tesla. But that bill also phases out the tax credits — currently costing the state nearly $30 million a year — in five years.
The four measures complete a total package worth up to $1.3 billion over the next 20 years were approved by 9:30 p.m. Gov. Brian Sandoval signed the package shortly after 10 p.m.
"This is arguably the biggest thing that has happened in Nevada since at least the Hoover Dam," said Assemblyman Ira Hansen, R-Sparks.
The biggest chunk in SB1 is the sales tax abatement, including the voter approved base 2 percent state tax in the Nevada Constitution, which would be completely abated for the next 20 years.
The state has the clear power to abate the rest of the state's total 7.25 percent sales tax. But a number of people said numerous questions have been raised about the constitutionality of the 2 percent basic sales tax rebate.
Steve Hill, head of the Governor's Office of Economic Development, said the issue has been closely scrutinized by LCB legal and the governor's staff.
"They have assured me they are very confident of the constitutionality of this bill — all of it," he said. "It's a mechanism that has been used in other areas of the state."
The economic diversification districts in the plan are modeled after the three Tourism Improvement Districts in Washoe County — the best known being the baseball park district in downtown Reno. That mechanism allows the company, in this case Tesla, to pay its taxes to state Taxation. The local government would then pledge that money for use for the purposes set up in the district and the state transfers the cash to the business, effectively erasing its tax bill.
Sen. Pete Goicoechea, R-Eureka questioned whether a subcontractor working on the site could use that exemption to avoid taxes on new equipment he could then use on future projects. Hill said no, the tax breaks are available only to the battery factory owner-operators, not to contractors and subcontractors.
In addition to sales taxes, the deal abates the property, business and insurance premium taxes for a period of 10 years.
But to get those tax breaks, California-based Tesla must invest at least $3.5 billion in the next 10 years. In addition, at least 50 percent of employees in both the construction phase and ensuing operations phase must be Nevadans. The bill also requires Tesla offer health insurance to workers.
Sen. Ruben Kihuen, D-Las Vegas, questioned how the state would make sure the workers were actual Nevadans.
Hill said that must be verified by showing Nevada drivers' licenses, vehicle registrations and other documents proving the workers actually live here.
The construction investments must be verified and if either doesn't meet the terms of the deal, the legislation allows taxation to "claw back" any abatements given — in effect, to demand repayment of any tax breaks.
The deal provides Tesla with a total of up to $195 million in transferable credits from two existing programs.
One offers a project such as Tesla eligibility for transferable tax credits based on the number of employees hired and the capital investment they make. Those credits can be used to offset insurance, gaming and other taxes as well as to abate property taxes and are worth about $125 million in all.
The other would take $70 million of the $80 million in transferable credits allotted to try to draw major motion picture and other film projects to Nevada.
Hill said less than $6 million in credits have been granted thus far — far fewer than originally expected.
Sens. Aaron Ford and Pat Spearman, both D-Las Vegas, protested saying that would wipe out a program small businesses have relied upon to expand their staffs and operations in Southern Nevada. Ford said he would try to revamp the legislation during the 2015 session.
Hill said those who have received the credits will keep them and no new applications have been applied for.
Those credits too are transferable — sellable — to casinos and other businesses that can then use them to offset taxes they pay the state.
The legislation contains significant reporting and auditing requirements to ensure Tesla and its partners are meeting their portion of the deal including an annual independent audit presented to the Legislature.
The annual report must detail the projects receiving tax credits, how much of those credits are transferred, the dollar amount of any abatements, the number of employees who are Nevada residents and an assessment whether participants are making satisfactory progress in meeting requirements among other things.
The legislation points out clearly it doesn't just apply to Tesla but to any other business that meets terms of the bill. The Assembly earlier passed two of its three much smaller bills implementing the deal.
Earlier in the day, Tesla CEO Elon Musk took to Twitter proclaiming the, "Official Gigafactory address to be: Electric Avenue, McCarran, Nevada."
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